The Pitfalls of Dental Partnerships

The Pitfalls of Dental Partnerships

Pitfalls of Entering a Dental Partnership

It has become increasingly popular for dentists to partner up with other dental professionals instead of venturing into a “solo practice” due to numerous benefits, including a better life balance and the rise in value of a business. Additional benefits include the equal apportionment of risks and liabilities between the partners and an increase in cash flow that could bring state-of-the-art equipment and better marketing for the dental practice, as well as sharing of the costs/overhead. Needless to say, there are pitfalls and potential legal dangers that may accompany a dental partnership. Many risks can be avoided with preliminary communication to establish the direction in which the practice will be headed and to determine whether you agree with the philosophy of the business or if you are a right fit with the office culture. Moreover, the personalities, skills and goals must be congruent across all partners.

While you consider entering a partnership, it is wise to do your due diligence and thoroughly review all documents pertaining to the practice you will be buying into. No document is off limits, particularly documents that specify the financial health of a practice. If the expenses of a practice have not been managed well, it could indicate that a prospective partner may be impractical with the manner in which funds are spent and could pose a financial risk for you. It is necessary for a new partner to be aware of every aspect that involves their dental practice – becoming familiar with vendors, ensuring that equipment is in well-condition to avoid liabilities, and having the capability to hire, train or fire staff in the best interest of the business.

As an owner in a partnership, you will frequently engage in shared decision-making processes; therefore, an open mind and willingness to compromise for the success of the practice is crucial. Whenever changes are made that will drastically alter the direction in which the business is headed, keep in mind that the outcome may personally reflect upon you. Further, the reputation of the practice, whether good or bad, will certainly follow you, should you decide to depart with the business. It is possible for a conflict-of-interest to arise at any given time, even after the partnership has been established. Should this occur, a discussion with all owners must take place and if a solution cannot be found, seeking legal advice is the next best step. As always, it is advantageous to have any changes placed in writing to avoid future conflict and be sure that all partners are involved whenever a change is suggested.

When an owner dentist wants to sell their portion of the practice, the details included in the Purchase Agreement will be considered. Therefore, having a clear understanding and agreement of the purchase value is an important aspect when deciding if joint ownership of a specific practice is right for you. Without having a proper valuation of the business, you may run the risk of not receiving your fair percentage of ownership interest or acquire a higher debt than expected due to pending litigation, for instance. The Purchase Agreement is negotiable and is best navigated with the aid of an experienced dental attorney. Ultimately, the success of the owners involved, and the practice as a whole, relies on knowing all received a fair deal at the beginning of the partnership.

A partnership suggests the high degree of commitment that a dentist is willing to make to a practice; however, it is not always set in stone the length of time an owner will remain with the business. One important question to consider if, and when, the time comes for a partner to step down as owner:

Is the practice protected from a partner wishing to join a competing practice after their departure?

To protect a business from associates and partners from soliciting their services to, or purchasing or starting, a competing practice, an attorney could draft a non-compete provision in your partnership agreement. There are certain states that do not enforce non-compete clauses; however, an attorney will be able to assist in finding legal methods to protect the remaining owners that are in compliance with their state laws.

It is of paramount importance that any preliminary agreements be placed in writing and notarized. All issues and concerns raised should be discussed with an attorney present prior to the establishment of a partnership. This action will help prevent unexpected legal disputes in the future amongst any of the owner dentists. Further, an experienced dental attorney will be able to provide references of additional drawbacks to consider while drafting the partnership agreement, to ensure that all partners have a clear understanding of what is to be expected as owners. Having this legal guidance brings an advanced level of protection from unforeseen risks for all partners involved.